One big reason that the Obama administration pumped nearly $100 billion to bailout the Puny Two—Government Motors and Chrysler—was that letting the two companies go through a regular bankruptcy would cause massive job losses at a time when the unemployment rate was already unacceptably high. But Hoover Institute's Paul Roderick Gregory offers evidence suggesting that this claim might be hooey.
Comparing the employment record of the airline industry that went through a wave of bankruptcies post 9-11 with the auto industry, he finds:
The four airlines [US Air and United in 2002; Northwest and Delta] had 204,000 employees on the dates they filed bankruptcy. They had 164,000 on the dates they emerged from bankruptcy. By this measure, bankruptcy cost airline employees some 20% of their jobs. The costs of bankruptcy were borne by employees, creditors and other stakeholders. It did not cost taxpayers.
On the date GM filed its taxpayer-funded bankruptcy, it had 92,000 employees. After bankruptcy it shrunk to 77,000, for a 16% loss of jobs. The GM job loss was only four percentage points lower than the airlines, which were in much worse shape. My guess is that a regular bankruptcy would have yielded about the same number of continuing jobs at GM as the taxpayer-funded bankruptcy.
The White House estimates an eventual $14 billion price tag for the GM and Chrysler bailouts. What has the $14 billion bought us? It certainly hasn't saved millions of jobs–more like 4,000, and probably fewer.
But the $14 billion price tag is much too charitable becasue, as I'd noted previously, it ignored the cost of the tax breaks received by GM. Once those were factored in, the loss would be closer to $28 billion. Even this might be too rosy because the loss on the principal then was based on the government selling its remaining shares in GM at $42.85 per share. But at closing yesterday, GM stock was trading at around $23 a share, about $10 below its December IPO price.
Bonus Material: Ford's latest ad takes off the gloves and slams GM for rattling its tin cup before Uncle Sam. It features a Ford pick-up—not hybrid, mind you—buyer named Chris saying:
I wasn't going to buy any another car that was bailed out by our government. I was going to buy from a manufacturer that's standing on their own, win, lose, or draw. That's what America's about is taking the chance to succeed and understanding when you fail that you gotta pick yourself up and go back to work. Ford is that company for me.